Kentucky lawmakers try to stem tide of falling fuel tax revenue

By Keith Goble, Land Line state legislative editor | Tuesday, January 20, 2015

Multiple Kentucky lawmakers are backing rule changes that would thwart a nearly dime decrease in the state’s fuel tax rates over a period of four months. State officials are pushing for changes to save funds available for transportation work.

Kentucky’s tax on fuels dropped by 4.3 cents per gallon on Jan. 1. The change is due to a state law that partially ties the state’s tax rates to the average wholesale price of fuel, which causes automatic changes in the excise tax on gas and diesel.

The 1980 law authorizes fuel tax rates to be adjusted every three months. It was enacted to address concerns that rising fuel costs would result in people buying less at the pump. As a result, the state would get less tax money for road and bridge work.

However, the tax rate can also decrease as fuel prices dip – as they have done in four of the last five quarters. When the next quarter begins April 1 an additional 5.1-cent-per-gallon drop is expected.

Rep. Lynn Bechler, R-Marion, has introduced a bill to halt the drop. HB167 would remove any adjustment to the average wholesale price of fuel without direct action of the General Assembly.

He offered an identical bill during the 2014 regular session but it didn’t get serious consideration and died in committee. However, with tax rates continuing to spiral state lawmakers may be much more receptive to his idea to stem the tide.

The state Department of Transportation estimates the Jan. 1 change caused by lower fuel prices will result in the loss of nearly $130 million for the Kentucky Road Fund. The amount is about 6 percent of the state’s highway program, which was forecast to have $2.25 billion in the current fiscal year from all sources.

To make matters worse, another round of fuel tax reductions is quickly approaching.

“The gas tax accounts for more than half of the revenue in the Kentucky Road Fund,” Transportation Secretary Mike Hancock said in a recent news release. “A loss of revenue is always concerning, but a revenue impact of this magnitude is crippling.”

Hancock said if lawmakers fail to act it could take years for the state to simply get back to the funding levels coming in to the state at the end of last month. Once fuel prices rebound, Kentucky law limits fuel tax increases to no more than 10 percent annually. As a result, it would take at least four years to reach levels from December 2014.

Sen Ernie Harris, R-Crestwood, is chairman of the Senate Transportation Committee. He is pushing for a change that would avoid another round of fuel tax reductions. SB29 would simply freeze the state’s existing tax rates.

The bills await assignment to committee in their respective chambers.

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